ORDER
T.K. Jayaraman, Member (T)
1. The appeal E/1138/99 has been filed by M/s. NCC Blue Water Products Ltd. against the OIO No. 9/99, dated 15-4-1999 passed by the Commissioner of Central Excise & Customs Visakhapatnam. Against the same OIO, the Revenue has filed an appeal E/714/2000.
Party’s appeal
2. The appellant is a 100% EOU. They imported goods duty free under Customs Notification 188/93, dated 27-12-1993 and 196/94, dated 8-12-1994 for use in their Aquaculture Project subject to the condition that the goods would be used for the production of aquaculture products, which would be exported out of India. In case of DTA sale, as per the Policy, the permission of the Development Commissioner is necessary. The Revenue proceeded against the appellant on the following grounds.
3. They produced and sold 11,15,29,540 nos. of Shrimp Seeds and 48,365 kgs. of Shrimps during the period from 1994-95 to 1997-98 in the DTA without obtaining the permission of the Development Commissioner, without issuing proper invoice under Rule 100E and without paying Central Excise Duty. The Commissioner, invoking proviso to Section 11A of the CE Act, demanded a duty of Rs. 1,83,46,493/- on the Shrimp Seeds and Shrimps and Fish cleared by them. Interest @ 25% was demanded under Section 11AB w.e.f. 28-9-1996. Penalty of Rs. l,13,05,410/- was imposed under Section 11D. Penalty of Rs. 8,00,000/- was imposed under Rule 173Q(1) of the CE Rules, 1944.
4. Shri M. Venugopalan, learned Advocate appeared for the appellant and Smt. Shobha L. Chary, learned JCDR appeared for the Revenue.
5. The learned Advocate made the following submissions :
(i) The Aqua Culture Industry, during the relevant period, was going through a bad phase and the appellant also was a victim. As they could not fulfil the export obligations, they produced and cleared Shrimp Seeds which are not fully developed Shrimps. They are only in the post larva stage. (ii) They were under the genuine belief that Shrimp Seeds are not excisable.
(iii) The Commissioner has classified Shrimp Seeds under heading 0306.23 on the ground that the Seeds are young of the Shrimps/prawns and in view of the Note 1 of Section 1 of CE Tariff to the effect that any reference to a genus or species of animal includes a reference to the young of the genus/species, ft was urged that Shrimp Seeds could not be classifiable under Chapter 3 at all for the simple reason that the Shrimp Seeds are not fit for human consumption. The learned Advocate emphasized that Chapter 3 would include only products fit for human consumption and not otherwise. He relied on the Note 1 (b) of Chapter 3 which is reproduced below:
“(b) Fish (including livers and rose thereof) or crustaceans, mollusks or other aquatic invertebrates, dead and unfit or unsuitable for human consumption by reason of either their species or their condition (Chapter 5); flours, meals and pellets of fish or of crustaceans, mollusks or other aquatic invertebrates, unfit for human consumption (Chapter 23).”
In view of the Chapter Note, Shrimp Seeds could be excluded from the purview of Chapter 3. In other words, the goods are not excisable. If they are not excisable, there is no question of payment of duty. Hence, the demand of duty on Shrimp Seeds cleared to DTA is not sustainable.
(iv) There was no suppression of facts as alleged by the Commissioner. The activities of the appellant’s unit were under full gaze of the department. There was no intention to evade any duty. Even the Range Superintendent, only on 5-7-1995, stated that deemed Customs Duty is payable on the goods manufactured or produced in 100% EOU units vide his letter OC No. 338/1995. In view of this, the demand is time barred. Therefore, the question of penalty under Section 11AC or under Rule 173Q does not arise. Interest under 11AB also will not be applicable.
(v) The Commissioner has demanded duty on goods cleared after completing the job work. The Commissioner has equated this clearance with the clearance of goods produced by the appellant and cleared to DTA. It was urged that the appellant doing job work for other exporters was known to the department as the appellant was facing a lot of difficulties in fulfilling the export obligations. They were forced to undertake job work to utilize the existing capacity. This issue was addressed to the authorities at Delhi and the Government permitted the sick aqua units to utilize their facilities for doing job work.
6. The learned JCDR maintained that the classification of the Shrimp Seeds under Chapter 3 by the Commissioner is correct as the Chapter excludes only dead animals. Since the Shrimp Seeds are alive, they would not be excluded from the scope of Chapter 3. She said for exclusion from Chapter 3, the item should be dead and unfit for human consumptions. It is not sufficient if the item is only unfit for human consumption. It should be dead also since the seeds are live, they would not come under the exclusion clause and would be rightly classifiable under Chapter 3. She reiterated the findings in the OIO.
7. We have heard the rival contentions. The Commissioner, after classifying the Shrimp Seeds under Chapter 3, has worked out the amount equal to the aggregate of the Customs Duty leviable as per proviso to Section 3(1) of the CE Act, 1944 and demanded the same. It is on record that for clearing the Shrimp Seeds, no permission was taken from the Development Commissioner. When the goods are cleared with the permission of the Development Commissioner, then only proviso to Section 3(1) of the CE Act, would be applicable. In Sam Spintex Ltd. v. CCE, Indore – 2004 (163) E.L.T. 212 (Tri – Del), it has been held that when there is a removal to DTA without permission of the Competent Authority, duty is leviable under main Section 3 of the CE Act, 1944 and not its proviso. While arriving at the above decision, the Hon’ble Tribunal relied on the decision in the case of CCE v. Pratap Singh – 2003 (153) E.L.T. 711 (Tribunal) which has been affirmed by the Apex Court vide its Order reported in 2003 (156) E.L.T. A382. In view of the above decision, even if the Commissioner’s finding on the classification of Shrimp Seeds is upheld, the duty would be NIL. In that case, the classification issue becomes academic. However, after going through the HSN Explanatory Notes, we are convinced that Chapter 3 would not cover items unfit for human consumption. In the present case, the Shrimp Seeds are undoubtedly not fit for human consumption in that stage. Therefore, it would not be excisable at all. In view of this finding, the demand of duty on the Shrimp Seeds cleared would be not sustainable.
8. As regards the goods cleared on job work basis, they cannot be equated with the goods produced by the appellant and cleared to DTA. Since the goods produced on job work basis were cleared to other exporters, there is no duty liability. Even otherwise, since the permission of the Competent Authority was not taken while clearing the above goods, the above mentioned ruling of Tribunal in Sam Spintex case would be squarely applicable. Moreover, the demand itself is time barred as there is no convincing evidence for suppression of facts. In view of the above observations, the OIO is liable to be set aside.
9. However, before concluding, we have to give our finding with regard to the Revenue’s appeal.
Revenue’s appeal
10. Two issues are involved in the Revenue appeal. One relates to the valuation adopted by the Commissioner. The second issue relates to the levy of penalty under Section 11AC and interest under 11AB for the entire period of the alleged offence. Since the Party’s appeal has been allowed, the discussion of the points raised in Revenue’s appeal may not be relevant now. Hence, we allow the Party’s appeal and dismiss that of Revenue.